Estate planning is necessary to protect your legacy
No one really likes to think about death.
We all know that at some point we are going to die, but it is not one of those subjects people generally want to face. Often it is only after going through the death of a parent, spouse or other loved one that we recognize the value of planning well ahead to ease the burden of stress on our loved ones.
One of the major misconceptions is that estate planning is only for people who have a lot of money. Estate planning is a valuable process for everyone, no matter how big their estate.
Estate planning is the process of designating who will receive your assets and handle your responsibilities after your death or incapacitation. One goal is to ensure beneficiaries receive assets in a way that minimizes estate tax, gift tax, income tax and other taxes.
Estate planning can help establish a platform you can fine-tune as your personal and financial situations change. The key question to ask yourself is: How do you want your assets distributed if you die or are incapacitated?
Estate planning doesn’t have to be complex, but it does need to look at these basic areas: Taking inventory - There is a rule of thumb among professional moving companies and waste haulers that people should estimate one yard of dumpster space for every year they lived in a home. Even small estates may include a lot of stuff, whether it is in real property such as a share of family- owned hunting land or a collection of antique dolls passed down through generations.
As you take stock of what you have, look at both tangible and intangible assets. Tangible assets include things like homes or land, vehicles like cars, boats or ATVs and collectable items.
Intangible items include banking accounts, stocks and bonds, life insurance policies, retirement plans, health savings accounts, ownership in a business.
It is a good idea to have the approximate value of these items if they were sold off. In some cases, the emotional value of something outweighs the actual price, for example a grandmother’s recipe book has little actual value but can have tremendous emotional value for survivors. When planning your estate it is good to account for both of these values.
In recent years, with the growth of online services, shared accounts should also be taken into account when getting an inventory of assets. There should be a plan for who takes over these accounts or if they will be closed on your death.
Decide what is needed — No one wants to be a burden on their loved ones, in life or in death. Depending on your age and your individual circumstances it makes sense to look to the needs of those who will be surviving you.
This includes talking with an insurance expert to determine your life insurance needs such as to ensure a surviving spouse or child with disabilities is cared for.
It is also a good idea to talk with a funeral home about preplanning and prepayment options so that when the time comes, loved one do not have the burden of funeral expenses.
Let people know your wishes — This can be as simple as telling a trusted loved one what plans you have. Often though, it requires some legal steps that, while not difficult, take some advanced planning.
These may include creating a trust to direct a portion of your assets toward things while you are alive. This can be especially useful when facing a degenerative illness allowing a trustee to take over when you are no longer able to. A trust can also help bypass probate. It is best to talk with a legal expert or financial planner to determine if this is suitable for your needs.
Other things people should plan for include a medical care directive such as limits on the types medical procedures you would allow and to designate someone to make medical decisions on your behalf as a medical power of attorney. This does not have to automatically be a spouse or close relative, just so long as the person can be trusted to follow your wishes and have your best interests in mind. Just as you should consider a power of attorney for healthcare decisions, it is a good idea to establish a power of attorney for financial decisions to be able to access accounts and ensure necessary bills get paid.
Review and update your benefi ciaries — When you set up retirement and insurance accounts you were asked to fill in beneficiaries who would be paid out on your death. It is a good idea to periodically go through and update these beneficiaries especially as life changes occur such as a divorce or remarriage. It is important to keep these current because they can outweigh instructions left in wills. Name contingent beneficiaries. These backup beneficiaries are critical if your primary beneficiary dies before you do and you forget to update the primary benefi ciary designation.